As tax refunds shrink, Republicans scramble to defend Trump tax cut

Size apparently does matter, at least when it comes to tax refunds, and that’s put Republicans on the defensive as Americans start filing their returns.

With headlines blaring about smaller refunds in the first weeks of the three-month filing season, GOP lawmakers and their supporters are working in tandem to remind people that the GOP tax overhaul cut almost everyone’s taxes last year, regardless of what their tax refunds look like this year.

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But Americans are accustomed to refunds, often big ones, and IRS statistics showing they are down by an average of 17 percent so far this year have forced a reckoning that conservatives didn’t expect. Democrats are doing their best to take advantage of it and ramping up their criticism of the tax overhaul, which passed without a single Democratic vote.

The Treasury Department has taken pains to note the numbers are early, coming just a few weeks after filing officially started Jan. 28.

“As we have noted, data this early in the filing season has many aberrations and isn’t useful in drawing broad conclusions on refunds overall," a Treasury Department spokesperson said when the latest batch was released Friday night. "There are many factors that impact refunds on a weekly basis that will normalize over time and lead to useful conclusions."

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But Democrats think they have the upper hand for now. “In politics, if you’re explaining you’re losing,” said one Democratic aide, who asked to remain anonymous to freely discuss internal party strategy.

Republicans are acutely aware that there's a public relations problem.

A Feb. 11 tweet from 2020 presidential aspirant Sen. Kamala Harris (D-Calif.), charging that the refund decline resulted from a middle-class tax hike under the Tax Cuts and Jobs Act, drew more attention to the issue, prompting strong Republican pushback.

GOP tax consultant Ryan Ellis, in a Washington Examiner opinion piece, called Harris’s tweet “an absurd, bad faith statement” and said “a tax refund’s size has nothing to [do] with whether or not one’s tax liability went up or down.” The middle class “were the big winners from the Tax Cuts and Jobs Act,” he wrote.

The piece quickly made the rounds among Capitol Hill Republicans and their policy advocates, Ellis said. That sparked an effort to launch similar responses as Ellis and others, including media fact-checkers, debunked Harris’s claim.

A crowd-sourcing effort got under way rather than a series of formal meetings for conservatives to coordinate, though Ellis recently did a presentation on the issue at Americans for Tax Reform, led by high-profile tax critic Grover Norquist, where Ellis worked for years.

Republicans are being forced to grapple with Democrats’ general narrative that the Trump administration willfully lowered 2018 paycheck withholding to boost take-home pay — and Republican election prospects last November — resulting in smaller refunds this year.

“Republicans deliberately made a decision to goose the tax bill so they could get credit in the fall of 2018 and in effect saying it’s a long time until the spring of 2019 and maybe everybody would forget,” said Senate Finance Committee ranking member Ron Wyden (D-Ore.). “I’m not forgetting.”

Sage Eastman of Mehlman Castagnetti, a former longtime Republican aide on the Ways and Means Committee, said, “People were voting in 2018, so you party with bigger paychecks in 2018 and risk the hangover in 2019 and hope it wears off before 2020.”

If that was actually the case, Republicans were playing with political fire. Some 70 percent of taxpayers typically get refunds, averaging about $3,000. Plenty of them plan around that, to pay bills or buy that flat-screen TV they’ve been wanting. Others view it as sort of a savings account.

As the smaller-refund narrative took hold in the media, Republicans started giving lessons in accounting.

Senate Finance Chairman Chuck Grassley (R-Iowa) and House Ways and Means ranking member Kevin Brady (R-Texas), both of whom played prominent roles in drafting the 2017 tax law, penned a joint op-ed to explain that smaller tax refunds don’t represent tax liabilities. Refunds result from overpayments.

“The size of your tax refund has nothing to do with your overall tax bill,” they wrote in USA Today on Wednesday. “It merely reflects what you overpaid the IRS in your paychecks last year.”

A clearly frustrated Grassley was more blunt to a group of reporters earlier.

“Isn’t it kind of stupid to look at a refund, what your refund is?” he said.

Many tax professionals see paying more taxes than you need to in hopes of a big refund as akin to giving an interest-free loan to the government.

A senior Treasury official dispensed financial planning advice to reporters on a conference call after the second straight week of lower-than-average refunds. No tax preparer would advise clients to offer free loans, he said.

Supporters of the Tax Cuts and Jobs Act stress that the IRS data are early. They say the agency’s statistics to date don’t fully reflect variables that could increase refunds as filing season wears on, such as payments connected to the earned income and child tax credits, the near-elimination of the alternative minimum tax and the impact of the partial federal government shutdown that ended just days before taxpayers could begin filing their tax returns.

Still, Andrew Moylan, executive vice president of the conservative National Taxpayers Union Foundation, admitted the right could have better telegraphed changes in refunds likely to come from the new law.

“Anybody could Monday morning quarterback the TCJA and messaging around it after the fact and probably figure out some ways that could have been done better,” Moylan said. “But I do think that there are some market fundamentals, so to speak, that were going to be difficult regardless.”

It’s a dynamic true of any policy reform or overhaul, he said.

But Ellis expects it to be much ado about nothing by the time tax filing season ends in April. He and Moylan both predicted a new deduction for non-corporate business income would increase the size of tax refunds, as well as legislation to retroactively fix glitches in the tax law and extend a bloc of expired tax breaks, though it will take a good deal of time for those variables to show up in the data.

“I remain very confident that refunds will not be down,” Ellis said, adding that the drop in refunds so far could be called “noise in the data.”